Vacant Residential Property: The Tax Collector Cometh

This is the first of a three-part series providing essential insights into the vacant home tax landscape for homeowners in Ontario. In particular, this post delves into the intricate details of the Federal Underused Housing Tax (the “UHT”)[1], shedding light on its mechanisms and implications for property owners.

How it works?

The Federal Underused Housing Tax (“UHT”) is an annual federal 1% tax on the ownership of vacant or underused housing in Canada that took effect on January 1, 2022. The UHT generally applies to individuals who are not a Canadian citizen or permanent residents, who are owners of Canadian real estate and not making a productive use of the property.

Who Must File UHT?

If you are an affected owner of a residential property in Canada, you have until April 30, 2024[2] to file your returns and pay the tax for the 2022 calendar year without being charged for penalties and/or interest.

How can you determine that your property is a residential property in Canada?

A residential property is any house or similar building with no more than three dwelling units and any portion of a building that is intended to be owned apart from any other unit in the building. Some examples are detached houses, semi-detached houses, residential condominium units, rowhouse units, townhouses, duplex and triplexes, cottages, cabins and chalets that are not commercial,  etc.

A person is not considered an owner of a residential property if giving continuous possession of the land on which the property is situated to either of the following:

• a life lease holder of the property
• a lessee under a long-term lease

How can you determine if you are an affected owner of a residential property in Canada?

An affected owner includes, but is not limited to, the following owners of a residential property in Canada:

• A foreign national (that is, an individual who is not a Canadian citizen or permanent resident)
• An individual who is a Canadian citizen or permanent resident, and who owns a residential property in Canada as a trustee of a trust (other than as a personal representative of a deceased individual, or as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through (SIFT) trust for Canadian income tax purposes)
• An individual who is a Canadian citizen or permanent resident, and who owns a residential property as a partner of a partnership
• A corporation that is incorporated outside of Canada
• A Canadian corporation whose shares are not listed on a Canadian stock exchange designated for Canadian income tax purposes
• A Canadian corporation without share capital.

Penalties and interest for failing to file the return on time

Please refer to the below chart for list of penalties as there are significant penalties if the Government does not receive your return when it is due:

In conclusion, understanding the implications of the UHT is crucial for homeowners in Ontario, especially those who own vacant or underused residential properties. Homeowners falling under this category must file their UHT returns by April 30, 2024, for the 2022 calendar year to avoid penalties and interest. Identifying whether a property qualifies as a residential property in Canada is essential, and the consequences for failing to file on time can be significant. Stay informed to navigate the complexities of vacant home taxation and ensure compliance with the regulations outlined by the government.

For more information, please contact Pooneh at sooresrafil@gsnh.com.

These comments are of a general nature and not intended to provide legal advice as individual situations will differ and should be discussed with a lawyer.

[1] https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html  

[2] https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html

[3] https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html